A settlement agreement is a contract entered into by an employer and employee whereby the employee agrees to waive certain claims they may have in return for some form of consideration. Usually the agreement will involve an end to the employment relationship but not always. Under the terms of the agreement, an employee will sign away employment rights such as their rights to bring a claim against their employer at the employment tribunal. In exchange for this, the employee is usually offered a compensatory payment which is often paid tax free, up to the value of £30,000.
A settlement agreement can provide clarity for both parties about how and when the employment relationship will come to an end.
There is no limit on what can be agreed under a settlement agreement, but common clauses relate to what claims are being waived, what payments the employee will receive, whether they will be required to work their notice period or receive a payment in lieu of notice, confidentiality provisions, post-termination restrictions and arrangements for returning company property.
Employees must receive independent legal advice on their settlement agreement before signing, and their legal adviser must sign the agreement as well. If you have been offered a settlement agreement and would like to speak to one of our team to meet this requirement, please do not hesitate to get in touch.